Office Market Boom! Is it A New Era for Real Estate in India?

Office Market Boom! Is it A New Era for Real Estate in India?

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Riding the wave of growth as demand for commercial spaces surges.

According to property research firms, the office market is experiencing a significant transformation, often referred to as a “purple patch.” Knight Frank projects that 2024 is on course to set an annual record, with transaction volumes expected to exceed 70 million square feet (MSF), surpassing the previous high of 60.6 MSF set in 2019. Cities like Bengaluru, Mumbai, Pune, NCR, Hyderabad, and Chennai are anticipated to see substantial growth.

Anarock also highlights the buoyancy in the office space market across the top seven cities, with Bengaluru, NCR, Chennai, Pune, and Hyderabad leading the demand for Grade-A office spaces. Post-COVID, the commercial sector, particularly the office segment, has fully recovered. It is projected that in 2024, gross leasing absorption will exceed the historical peak of 65 MSF recorded in 2019. Last year, the segment reached around 60 MSF, with the first half of 2024 already showing double-digit growth.

Leading domestic companies and emerging players are increasingly seeking to upgrade to a Grade A+ office ecosystem, focusing on end-user experience and holistic wellbeing, accounting for almost 45% of the total demand—up from 33% in 2019. It’s estimated that 75% to 80% of domestic occupiers are looking to expand their office space by 10% over the next two years. Conversely, the demand from US MNCs has decreased from 45% in 2019 to 35%, reflecting the resilience of Indian corporations amid strong macroeconomic fundamentals.

Experts indicate that the strong business momentum and positive sentiment are expected to drive market volumes in the coming years. Knight Frank’s analysis reveals an average growth of 5.5% in operational office space across leading cities from July to September 2024 compared to the same period last year. However, the situation regarding vacant office spaces, particularly those ready for operation, shows an average growth of -0.5%.

Knight Frank also notes a 14% increase in average vacancy rates across top cities in the July-September quarter of 2024 compared to the previous year. While the rise in vacant inventory is concerning, the long-term fundamentals of the office market remain robust. The key question is whether the optimism surrounding economic growth will persist or if a slowdown will occur as commercial space expands alongside high vacancy rates.

According to a recent industry report, the Indian real estate sector is projected to reach $1 trillion in sales by 2030, contributing 13% to the GDP by 2025. This boom is supported by various factors:

• Migration and Suburban Growth: The development of IT special economic zones and the presence of reputable educational institutions have attracted a steady influx of migrants to suburban zones.

• Enhanced Commuter Connections: Improved connectivity has made these suburbs more appealing to homeowners, providing decent access to the rest of the city.

• Affordability: The availability of properties at reasonable prices compared to metropolitan areas, coupled with proximity to essential facilities, has led to high demand in micro-markets.

The outlook remains promising for real estate players, particularly those who have diversified their portfolios and possess the expertise to capitalize on opportunities in both favorable and challenging market conditions.

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